The C.D. Howe Institute published a significant critique of Canada's CWELCC program today, August 10, 2026. Written by Associate Director of Research Parisa Mahboubi and Policy Analyst Tingting Zhang, the piece identifies what they call the central paradox of the $10-a-day child care plan: it has made care more affordable but less accessible. Their proposed solution, a shift toward income-tested fees and a dual-track system modelled on Quebec, would reshape the funding environment Ontario operators are currently navigating if it influences the 2027 agreement negotiations.
The report lands at exactly the moment federal and provincial governments are negotiating the terms of the next agreement period. For operators, understanding the policy direction being advocated by one of Canada's most influential economic research institutions is not optional background reading. It is early warning of where the regulatory and funding framework you depend on may be heading.
What the C.D. Howe Report Actually Says
The report confirms what operators already know on the ground. In 2024, more than three-quarters of child care centres reported having an active waitlist. By 2025, nearly half of parents using child care reported difficulty finding care, up from 36 percent in 2019. The number of new licensed spaces remains well below the federal target of 250,000 by March 2026. Staffing shortages have limited centres' capacity to expand even when funding is available, with job vacancies for early childhood educators remaining well above pre-pandemic levels.
The fiscal assessment is sharper. The C.D. Howe analysis finds that CWELCC generated less than one percent of its cost back in tax revenue over its first three years. The labour supply gains the program was designed to produce have not materialized at the scale projected. Maternal labour force participation rose approximately 3.7 percentage points between 2019 and 2025, but the report notes that pandemic-related labour market conditions and the rise of remote work contributed significantly to that increase independently of CWELCC.
The proposed solution is a dual-track system. Track one would maintain subsidized regulated spaces targeted specifically at lower and middle income families through income-tested fees on a sliding scale, where lower income households receive the greatest support and higher income families contribute more. Track two would introduce a refundable, income-tested tax credit for families using private or non-standard care, or those unable to access the licensed system at all, similar to Quebec's existing model.
What This Means for Ontario Operators
If income-tested fees replace the current universal fee cap, the base fee revenue structure that underlies your Cost-Based Funding Allocation changes materially.
Under the current framework, your Expected Base Fee Revenue Offset is calculated based on your operating spaces multiplied by the regulated daily base fee, currently capped at $22 per day in Ontario, adjusted by an allowable vacancy rate. The fee is the same for every eligible family regardless of income. Your allocation is built on that predictable revenue assumption.
Under an income-tested model, different families in the same room would pay different fees based on their income. Your total base fee revenue would become a function not just of enrollment and vacancy but of the income distribution of the families you serve. Centres serving higher proportions of lower income families would collect lower total fee revenue under a sliding scale. Whether the funding formula compensates for that difference through adjusted allocations or whether operators absorb the revenue variation is the central policy question that a transition to income-tested fees would need to answer.
This is not hypothetical. The ACE 10-point framework proposed a tiered affordability model with exactly this structure earlier this year. The C.D. Howe report reinforces that policy direction from an independent economic research perspective. Both are landing at the same moment the 2027 agreement is being negotiated.
The Workforce Problem Is Yours Regardless of What Policy Does
The report's analysis of staffing shortages describes a sector-level problem. For individual operators, it is a cost structure problem that exists today regardless of what happens in 2027.
High turnover, elevated wages required to compete for qualified ECEs, and limited benefits packages that make the profession less competitive than adjacent fields are all showing up in your program staffing eligible costs right now. The C.D. Howe report confirms these pressures are systemic and not improving. That confirmation matters for your cost review defence if your program staffing costs are elevated relative to benchmark: the staffing market conditions you are navigating are documented at a national research level, not just anecdotally.
The report also notes that fewer than two percent of licensed centres offer evening or weekend care, even though nearly two in five parents work non-standard hours. For operators considering program expansion, this access gap represents real unmet demand. Expanding into non-standard hours is operationally complex and carries different staffing cost implications than standard day programs, but the demand the C.D. Howe report quantifies is genuine.
What Operators Should Do With This Information
The honest answer is that you cannot control what direction federal and provincial governments take the 2027 agreement. What you can control is how well you understand your current financial position under the existing framework before that framework potentially changes.
Operators who enter a policy transition with clean financial records, accurate eligible cost documentation, a well-understood Program Cost Allocation, and a clear picture of their base fee revenue structure are positioned to adapt quickly to whatever the 2027 agreement requires. Operators who do not know their current numbers will be scrambling to understand a new framework before they have finished understanding the old one.
With five months remaining in the 2026 calendar year, this is the moment to run a mid-year reconciliation projection, understand your eligible cost run rate, and identify any gaps between your actual costs and your Program Cost Allocation before December closes the window to act.
ChildcareFundingIQ gives you that visibility now. The platform runs your 2026 allocation using current benchmark rates, tracks your eligible costs by GIFI and FIN codes, and projects your year-end reconciliation position so you are not entering a policy transition year with unresolved financial exposure from 2026.
If you are navigating a cost review, a reconciliation concern, or want strategic advice on how the policy direction the C.D. Howe report describes might affect your specific centre's financial position, our consulting services provide direct operator-side analysis.
Sign up free at childcarefundingiq.ca and run your 2026 allocation today.
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Learn More →Source: Mahboubi, Parisa and Tingting Zhang. "Fixing the broken dream of $10-a-day child care." C.D. Howe Institute, August 10, 2026.